11 Costs First Time Real Estate Investors Should Consider

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The Expert Guide to Real Estate Investments

In the current housing market where mortgage rates are increasing, buyers should be aware of extra expenses that aren't covered by the listed sale price. Mashvisor understands how the process of investing in income rental property goes beyond the expenses advertised and the following will advise first time real estate investors on the hidden costs of buying a rental property.

Consider Your Rental Strategy

For rental properties to generate the optimal income return you have to consider a strategic rental approach in your rental listing. There are many different rental strategies, all of which offer differing returns on your property. Mashvisor is an excellent place to start researching the returns your property can get in each area and comparing listing on Airbnb or as a traditional rental, additionally Mashvisor provides an Airbnb Insights Report that analyses the potential investment opportunity and income of an area.

Home Repairs

As a landlord, when things go wrong in the house the renters will be looking to you for assistance and decision-making. It maybe as simple as a new part for a washing machine or it could be more complex like flood damage from a broken pipe. As a landlord you will be obligated to ensure general household maintenance and with most unpleasant surprises in life you won't know when they are coming. Rule of thumb says that one percent of your home value should be set aside for home repairs per year, this is assuming that you have responsible tenants.

Ensuring a Bug Free Environment

Firstly and foremost homes should provide a safe and habitable space for your renters to live in. To ensure this, it is highly recommended that buyers seek an independent pest inspection. Many problems not necessarily noticeable to the naked eye can be incredibly difficult to remove in later stages and catching any problem early could save you a lot of time and expense in your investment property. If your desired property is found to have an issue, you can either ensure the issue is rectified before closing the final deal, use the knowledge as leverage for a reduced price or establish an agreement that it needs to dealt with by the seller directly prior to closing.

Furnished or Not Furnished

If you decide to list your investment property on Airbnb or as being furnished you will have to invest in furniture and other amenities to compete with other listings. Amenities will influence your occupancy rate; guests are demanding certain amenities when renting a property short-term. Mashvisor’s Airbnb Insights Report can provide you with a list of amenities that are being requested and their importance rank to guests. Additionally, furniture can be costly, make sure to shop around to find companies that will give you inclusive cost up-front with no hidden fees.

Home Inspections

Inspections might seem pricey but seeing as a buying rental property is usually the largest investment you are likely to make. Home inspections are your opportunity to ensure that there are no hidden issues that could be difficult or costly to repair later and should be done before closing the deal. From an investment perspective, you want to make sure your money is going into a sound purchase.

Appraisal Fees

The final stage before you close on an investment property is ensuring you get the property valued by a real estate appraiser. These are likely to cost between $350 to $400 and are needed to help lenders decide on how much money to offer mortgage borrowers, a small but necessary stage to closing on your house.

Closing Costs

As with everything in life, signing an assortment of contracts and deals involves the exchanging of money you never thought of. These costs include processing fees from agents, recording fees, underwriting fees and title insurance fees, on average closing costs amount to 2 or 3% of the mortgage loan amount. We recommends you discuss these costs with your estate agent so you know how much additional money you require so you stay within budget and get the most value within your budget.

Additional Costs and Moving Fees

If you decide to list your investment property on Airbnb or as being furnished you will have to invest in furniture and other amenities to compete with other listings. Amenities will influence your occupancy rate; guests are demanding certain amenities when renting a property short-term. Mashvisor’s Airbnb Insights Report can provide you with a list of amenities that are being requested and their importance rank to guests. Additionally, furniture can be costly, make sure to shop around to find companies that will give you inclusive cost up-front with no hidden fees.

Property Taxes and Homeowners Insurance

First time real estate investors are always struck by the complexities of mortgages and often forget that a mortgage is a loan that will accrue interest rates, these rates will be shown in the mortgage payments you receive as well as property taxes and homeowner insurance premiums. This can make the statement you receive each month look very complicated and also increase your monthly expenditures just that little bit more. Make sure to review the tax and insurance costs in your area before purchasing to calculate the total monthly payment.

Insurance

Take into account where your cash flow property is located and any environmental risks that could occur, for example are you near water or on a known flood plain? You might want to consider flood insurance as an additional investment. Insurance may sound like an unnecessary add on but costs of fixing or replacing things can be incredibly expensive. Remember to also encourage your renters to get contents insurance regardless of how safe the neighbourhood is, sentimental value can’t be replaced but other items can be.

Utilities

In a world with rising costs utilities can often far exceed what most expect. Are you including utility costs into your rental price, make renters pay it directly themselves or cover it yourself? When thinking about this consider that you have no control over how much your renters turn their heating on. It’s often easier to charge a standard fee upfront or encourage them to deal with bills directly by offering them a lower rent.

Homeowners Association

If your income rental property is within a gated community or apartment block you are likely to be asked to pay additional monthly fees for general up keep of communal areas. These are often not advertised beforehand but must be paid. Again consider factoring the cost into your renting price. 

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